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TMI Blog2020 (7) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry of Commerce and Industries, Government of India. 3. The Appellant is in the business of generation and transmission of power. It set up a Thermal Plant at Tunda and Siracha. In regard to the service tax paid by the Appellant under reverse charge mechanism as provided for under Section 66A of the Finance Act, 1994, the Act, the Appellant filed refund claims under the notifications issued from time to time since it was situated within SEZ. 4. An enquiry was, however, initiated against the Appellant in regard to External Commercial Borrowings, ECB transactions for setting up the power plant during the period 18 April, 2006 to 31 March, 2010, particularly in regard to ECB of US$ 500 million from Standard Chartered Bank, London, London Bank on 29 January, 2008 and ECB of US$ 99 million from ICICI Bank, Hong Kong Bank, Hong Kong Bank. 5. Ultimately, a show cause notice dated 27 January, 2011 was issued to the Appellant. It was stated that ECB being "lending" is covered under the definition of 'banking and other financial services' and the charges recovered by the lender, apart from the interest, shall be the gross amount charged by the service provider of such service, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the service tax leviable thereon under section 66 of the said Finance Act and the exemption claimed by the developer or units of SEZ shall be provided by way of refund of service tax paid on the specified services used in relation to the authorized operations in the SEZ except for services consumed wholly within the SEZ. This made it clear that from 03-03-2009, developers or units of a SEZ should pay service tax leviable thereon and subsequently may claim refund from the competent authorities irrespective of the position that whether such specified services are consumed within or outside SEZ." 8. In regard to the ECB of US$ 99 million from Hong Kong Bank, the show cause notice mentions : "5.6 It can be seen from the above table that they have made payment of agent fee, upfront fee and legal council fee in the months of December, 2009, January, 2010 and February, 2010 respectively. These information should have been furnished in their ST-3 filed for the second half year of 2009-10 (for the months of October, 2009 to March, 2010). Scrutiny of ST-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia for availing ECB; Section 70 of the Finance Act, 1994, read with rule 7 of the Service Tax Rules, 1994, in as much as they had not declared the correct amount of charges paid by them in lieu of taxable services, received by them in the ST-3 returns filed by them. 7.2 The above facts clearly proves that APL have not paid service tax by way of willful suppression of facts and in Contravention to the provisions of Finance Act, 1994 relating to levy and collection of service tax and the Rules made there under with intent to evade payment of service tax. Therefore the service tax is recoverable from them by invoking extended period of five years as per first proviso to sub-section (1) of Section 73 of the Finance Act, 1994." 11. The Appellant filed a detailed reply dated 09 May, 2011 to the aforesaid show cause notice and denied the charges. 12. For the ECB of US$ 500 million, it was stated that approval was obtained for the said ECB in relation to the power project of 1320 MW in SEZ on 25 June, 2008, but this facility was later cancelled and hence the upfront fee was refunded on 19 December, 2009 by deposit of the amount in the bank account of the Appellant. It was also stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices were to be consumed within SEZ was not accepted. The Commissioner observed as follows : "26.............I find that M/s APL are having their registered office at 7th Floor, Sambhav Building, Judges Bunglow Road, Bodakdev, Ahmedabad. Services are intangible in nature and therefore their consumption can be anywhere unlike goods which can be consumed in a factory during the manufacturing process. Thus, even though M/s APL may be an approved Developer of power project in Sector specific SEZ, it cannot be said-that the "Banking and "financial services" received by them were wholly consumed within the Special Economic Zone as they have their -registered office outside the Special Economic Zone. This view also finds support from the fact that with regard to the availment of ECB facility of US$ 99 million from ICICI, Bank Hongkong (which is discussed in detail below) they had made payment of service tax. I find that had the said "Banking and other financial services" been consumed wholly within the SEZ, M/s APL would not have paid service tax in view of exemption provided in notification No. 9/2009-ST dated 3.3.2009 amended by notification No. 15/2009-ST dated 20.5.2009 which super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial charges/legal counsel fee" amount either in the ST-3 returns or in any other way to the Department. Since, they even did not consult the Department in case of any doubt, the intention will have to be believed as that of evasion. Once the details are not submitted to the Department, misdeclaration or suppression is rightly invoked. I, therefore, conclude that the element of suppression with intent to evade payment of service tax is conspicuous by the peculiar facts and circumstances of the case as discussed above and, therefore, the extended period of limitation under Section 73(1) of the Finance Act, 1994 is rightly invokable for recovery of service tax demanded in the impugned show cause notice. In view of the above discussion and findings, the ratio of cases relied upon by M/s APL cannot be applied in the case before me. (emphasis supplied) 19. The Commissioner, therefore, confirmed the demand on service tax with penalty and interest. 20. Shri Jitendra Motwani, learned Counsel for the Appellant made the following submissions:- (i) The Commissioner committed an error in confirming the demand of service tax on the ECB facility of US$ 500 million given by the London Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act could not have been resorted to as there was no wilful mis-statement or suppression of facts or fraud on the part of the Appellant, more particularly when service tax, if paid, would in any event have been refunded to the Appellant under the notification dated 3 March, 2009; (v) The Commissioner committed an error in holding that the extended period of limitation provided for under the proviso to section 73 (1) of the Act was correctly invoked in the show cause notice. In the present case there was no willful mis-statement or suppression of facts with an intention to evade payment of service tax as the service tax, if deposited by the Appellant, would have been refunded to the Appellant; and (vi) The Commissioner also committed an error in imposing penalties under sections 77 and 78 of the Act. 21. Shri Gobind Jha, learned Authorized Representative of the Department has, however, supported the impugned order and made the following the submissions. i. Even if the ECB facility provided to the Appellant by the London Bank for availing US$ 500 million had been cancelled, still the liability to pay service tax had arisen before the event of cancellation and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven otherwise, there is no liability to pay service tax in view of the provisions of the SEZ Act and the Rules framed thereunder and the notification dated 31 March, 2004. In regard to the ECB facility of US$ 99 million granted by the Hong Kong Bank, the Appellant contends that initially the Appellant was under a belief that since ICICI Bank had a registered office in India, it would not be required to pay service tax on a reverse charge mechanism, but when summons were received from the Department, legal opinion was sought pursuant to which the Appellant deposited the service tax with interest and intimated the Department before the service of the show cause notice. Thus, the show cause notice proposing tax on this facility could not have been issued in view of the provisions of sections 73 (3) of the Act and section 73 (4) of the Act could not have been resorted to by the Department as there was no wilful mis-statement or suppression of facts with intent to evade payment of service tax, nor any penalty could have been imposed. 25. To appreciate the contentions, it would be appropriate to examine the relevant provisions. 26. It is under section 66A of the Act that service tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approvals for export oriented unit and Special Economic Zone units, as notified in the Official Gazette, from time to time by the Government of India in the Ministry of Commerce and Industry; (2) "developer" means a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorised for such purpose by any such developer; (3) "Special Economic Zone" means a zone specified as Special Economic Zone by the Central Government in the notification issued under clause (iii) of Explanation 2 to the proviso to sub-section (1) of section 3 of the Central Excise Act, 1944 (1 of 1944). 28. The notification dated 31 March, 2004 was superseded by notification dated 03 March, 2009 and the relevant portion is reproduced below:- "NOTIFICATION NO. 09/2009-SERVICE TAX, DATED : MARCH 3, 2009 G.S.R. 146(E) - In exercise of the powers conferred by subsection (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2004-Service Tax, dated the 31st March, 2004, published in the Gazette of India, Extraordinary, Part II, Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Xxxxxxxx xxxxxxxx xxxxxxxx [emphasis supplied] 29. The notification dated 03 March, 2009 grants exemption to the taxable services specified in section 65 (105) of the Act provided in relation to the authorized operations in the SEZ and received by a developer or units of a SEZ, whether or not the said taxable services are provided inside the SEZ, from the whole of the service tax leviable thereunder under section 66 of the Finance Act. The proviso, however, stipulates that the exemption claimed by the developer or units or SEZ shall be provided by way of refund of service tax paid on the specified services used in relation to the authorized operations in the SEZ. 30. Proviso (c) to the aforesaid notification dated 03 March, 2009, on which reliance has been placed by the Appellant and which has been referred to in the show cause notice and the impugned order, was amended by notification dated 20 May, 2009. The amended proviso (c) is reproduced below:- "(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the power project in the SEZ and an upfront fee was paid to the bank on 25 June, 2008. This fee was subsequently refunded by the bank on 19 November, 2009 to the Appellant since the facility was later cancelled. It has also been stated that the refund amount was deposited in the bank account of the Appellant. In the first instance, it has been contended that under the notification dated 31 March, 2004, exemption was granted to the taxable services of any description provided to a developer of SEZ to any service provider for consumption of the services within such SEZ, from the whole of service tax leviable thereon under section 66 of the Act, subject to certain terms and conditions. The Appellant contends that since the entire service rendered by the service provider to the Appellant was to be used for the authorized operation of SEZ, the same would be used for consumption of the services within SEZ and to further justify this, it has been stated that the Appellant does not carry out any other business, other than the authorized operation in the SEZ. 36. The benefit of this notification has been denied to the Appellant for the reason that the Appellant has its regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorized operations in SEZ. The Explanation is as follows:- "Explanation.- For the purposes of this notification, the expression "wholly consumed" refer to following taxable services, received by a Developer or Unit of a SEZ, for the authorised operations, namely:- (i) xxxxxxxxxx (ii) xxxxxxxxxx (iii) services other than those falling under (i) and (ii) above, provided to a Developer or Unit of SEZ, who does not own or carry on any business other than the operations in the SEZ;" 40. It is in this context that question number 3 and its clarification contained in the Circular dated 18 May, 2011 have to be appreciated. The said question and the clarification are reproduced below:- S.No. Question Clarifications 1. --------- --------- 2. --------- --------- 3. Meaning of the expression 'who does not own or carry on any business other than the operations in the SEZ' appearing in paragraph 2(a)(iii) of the notification, which creates a difference between 'standalone' and 'non-standalone' SEZ Unit/Developer, may be clarified. The expression refers to an entity which is carrying out business operations in SEZ and also DTA. Merely having an office in the DTA for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly within SEZ and, thereafter, claimed refund. 44. It is correct that in case the services were to be consumed wholly within SEZ, the Appellant should not have deposited the service tax in terms of the amended provision (c) of the notification dated 3 March, 2009. It is, however, seen that the Appellant had deposited the service tax and thereafter claimed refund of the tax deposited under proviso (c) of the notification dated 3 March, 2009. It appears that the Appellant was unaware of the amendment made in proviso (c) by notification dated 20 May, 2009. In any case, an erroneous deposit of service tax and then claiming refund would not mean that the Appellant should be directed to commit the same mistake in regard to the ECB facility of US$ 500 million granted by the London Bank. This apart, the Department has not even pointed which part of service was actually utilized by the Appellant outside SEZ. Thus, deposit of service tax and then making a claim for refund cannot in any manner lead to a conclusion that the services were not wholly consumed within SEZ. The Commissioner, therefore, clearly fell in error in observing that since the service tax was deposited and then refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of- (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words 'one year' , the words "five years" had been substituted. (2) xxxxxxxxxxx (3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1) of section 73 of the Act provides that where service tax has not been paid, the Central Excise Officer may serve notice on the person chargeable with the service tax requiring him to show cause why he should not pay the amount specified in the notice, but sub-section (3) of section 73 also provides that where any service tax has not been paid, the person chargeable with the service tax may pay the amount of such service tax before service of the notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1). The Appellant paid the service tax before service of the show cause notice and informed the Central Excise Officer of the payment in writing. The Revenue has relied upon sub-section (4) of section 73 that provides that nothing in sub-section (3) shall apply to a case where any service tax has not been paid by reason of fraud; or collusion; or wilful mis-statement; or suppression of facts; or contravention of any of the provisions of the Chapter or of the rules made thereunder with intent to evade payment of servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quivalent to the duty specified in the notice." 55. In Pushpam Pharmaceuticals Co., the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts' had been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows; "4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act." 57. These two decisions in Pushpam Pharmaceuticals Co. and Anand Nishikawa Company Ltd. were followed by the Supreme Court in a subsequent decision of the Supreme Court in Uniworth Textile Limited v/s Commissioner of Central Excise, Raipur 2013 (288) ELT 161 (SC) and the observations are: "18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944." 58. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commissioner of Central Excise, Chandigarh-I 2007 (216) ELT 177 (SC) also held: "10. The expression 'suppression" has been used in the proviso to Section 11A of the Act accompanied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of section 73 were applicable. The findings are as follows:- "I find that service tax has been demanded in the show cause notice by alleging suppression of facts thereby invoking the extended period under proviso to section 73(1) of the Finance Act, 1994. Therefore, the provisions of section 73(3) of the said Act cannot be applied in this case in view of section 73(4) of the Finance Act, 1994." 62. The Commissioner also held that the extended period of limitation provided under the proviso to sub-section (1) of section 73 would be applicable because if the Directorate General of Central Excise Intelligence had not taken up the investigation, the evasion of service tax would have remained unnoticed. Therefore, according to the Commissioner, it would be a case "amounting to deliberate non-declaration and suppression of vital information with a wilful intention to evade payment of service tax". The Appellant, according to the Commissioner, had not furnished the required details of payment of 'upfront fee' either in the ST-3 returns or in any other way to the Department. 63. The Appellant had, in reply to the show cause notice, explained that the extended period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Division Bench decision of the Tribunal in Reliance Industries Ltd. v/s Commissioner of Central Excise and Service Tax, LTC, Mumbai [2016] 72 taxman.com 6 (Mumbai-CESTAT). Paragraph 12 of the decision is reproduced below:- "12. We also note that the entire dispute being revenue neutral, there could have been no intention to evade payment of duty and consequently the extended period of limitation was per se not invokable. It is settled law laid down in the following amongst other judgements a series of judgement including that of the Apex Court that in a case where credit is available to an assesse itself it cannot be said that there is any intention to evade payment of duty, which is a pre-requisite for invoking the extending period of limitation. In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute being revenue neutral. This being the case the invocation of extended period of limitation is clearly not justified:- a) Reliance Industries Ltd vs CCE 2009 (244) ELT 254 (Tri-Ahd.) b) CCE & C vs. Indeos ABS Ltd. 2010 (254) ELT 628 (Guj.) c) Mafatlal Industries Ltd vs CCE 2009 taxman .co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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